Do Rural Homeowners Have Lower Mortgage Credit Access?

Small balance mortgage loans and loans for manufactured housing—both of which are more prevalent in rural areas—have higher loan denial rates, according to new research from Fannie Mae. 

This is important to note because “one way to measure impacts on the availability of credit is to analyze denial rates,” Fannie Mae stated in a recent white paper. 

Relying on data from the Home Mortgage Disclosure Act between 2012 and 2017, Fannie Mae examined rural and high-needs rural areas, including parts of the Lower Mississippi Delta, Middle Appalachia, and Persistent Poverty counties as defined by the Federal Housing Finance Agency. 

Small balance loans make up 13.6% of the overall purchase loan market and 17.9% of the refinance loan market. However, in the high-needs rural areas Fannie Mae examined, small balance loans make up between 25.6% and 39.3% of purchase loans and between 30.4% and 45.1% of refinance loans. 

Manufactured housing loans, which often have lower balances, are more prevalent in rural and high-needs rural markets. Rural markets account for 60% of the manufactured housing sector’s purchase loans and 72% of refinance loans. 

Loan denial rates tend to be higher for manufactured housing and for small balance loans. Also, for site-built homes, denials tend to be higher for refinance loans than purchase loans. However, for manufactured homes, denials are higher for purchase loans than for refinancing loans. 

Along with the higher prevalence of smaller balance loans, Fannie Mae found a higher rate of loan denials for site-built homes in rural and high-needs areas. This can partly be attributed to the fact that denials increase as loan amount decreases, but Fannie Mae pointed out that “even within narrow loan amount ranges, we find that denial rates for site-built home mortgages in these markets are above U.S. averages.”

This could be attributed to the fact that incomes and credit scores tend to be lower for residents in rural and high-needs areas. 

If, as Fannie Mae stated, “one way to measure impacts on the availability of credit is to analyze denial rates,” then has Fannie Mae determined that there is lower credit availability in rural areas? If so, is the ability to repay rule a contributing factor?

“One of the concerns associated with the ATR/QM Rule’s imposition of maximum points and fees thresholds in 2014 pertains to the ability of lenders to originate loans with small balances,” Fannie Mae stated in its white paper. 

Any fixed costs on a loan would, naturally, disproportionately affect lower balance loans. 

“However, assessments of the rule’s impact on smaller balance loans’ denial rates have generally failed to find evidence that points and fees thresholds are associated with a curtailment of credit to borrowers seeking loans with smaller loan amounts,” Fannie Mae said.